Labour announces date, rules for 3G spectrum auction

The government has set the start date for the long-delayed 2GHz radio spectrum auction, along with provisions to protect competition and provide a share of spectrum for Maori.

The government has set the start date for the long-delayed 2GHz radio spectrum auction.

Acting Communications minister Trevor Mallard announced yesterday that the auctions would begin on July 10 and confirmed a set of conditions intended to protect competition in future services and a provision for Maori interests to gain a share of spectrum.

Mallard described the forthcoming auction as "particularly exciting given that part of it can support third generation cellular technology, which will eventually provide high speed mobile data and voice applications."

The auction was originally to take place last year but was delayed first for a court to consider claims by Maori to a share of spectrum and then at the request of telecommunications companies, who did not feel they were ready to bid.

National's Communications minister Maurice Williamson postponed the auction until late January, but Labour's Paul Swain made it plain in advance of the general election that he was unhappy that National's structure for the auction could allow a few interests to capture and "warehouse" spectrum.

While National rejected a court opinion that Maori had a right to a slice of the spectrum, Labour says preferential bidding access to one 15MHz block of third generation spectrum "will be given to those parties able to demonstrate some commitment to involve Maori in the development of this spectrum," according to Mallard.

Criteria for who will be eligible to bid for this spectrum will be announced later.

Mallard says the government has addressed competition issues by placing a cap on the amount of third generation spectrum that can be acquired by individual bidders in the auction.

"That means that no bidder will be able to purchase more than 15 MHz of spectrum in the third generation band (1920 – 1980 MHz) plus its 'natural pair' (2110 – 2170 MHz). This cap will allow at least four competitors to provide third generation mobile services.

"By imposing this cap we should see vigorous competition in the provision of these new services that will benefit the economy as a whole."

The delay required by Labour's revision to the auction structure seems likely to enhance, rather than hurt, the value of the spectrum on offer. Both carriers and vendors of telecommunications equipment are clearer on the potential and value of "3G" services.

The government yesterday released the following "questions and answers" supplement to its announcement of the auction date and condtions.

1. Why was the auction postponed?

The 2 GHz auction involves the auction of various management rights and spectrum licences over radio spectrum in the 2 GHz band (spanning the frequency range 1710 – 2300 MHz).

The auction was previously due to commence on 31 January 2000.

In late 1999, the Government decided to delay the auction to undertake further work on competition issues. In particular, the Government was concerned about the potentially harmful effects on the economy if there was concentration of ownership in spectrum that could be used to provide third generation mobile services.

What are third generation mobile services?

Part of the 2 GHz band spanning the range of frequencies from 1920 – 1980 MHz (the 3G band) is capable of supporting two new and developing cellular mobile technologies: second (2G) and third (3G) generation USPCS (United States Personal Communication Services) technology, a US-based standard; and 3G IMT 2000 (International Mobile Telecommunications) technology, a European-based standard.

Implementation of 2G USPCS technologies would enable the provision of services broadly similar to those delivered by GSM technology. 3G USPCS or IMT 2000 technologies will be capable of supporting high speed mobile data and voice applications.

The Government considers that the new third generation mobile technologies will be important to New Zealand's economic development, particularly by providing a range of enhanced mobile services for New Zealand consumers.

2. Why is a cap being imposed?

Under previous government policy there were no specific auction rules restricting the amount of spectrum one bidder may acquire at the 2 GHz auction. Instead, reliance was to be placed on the operation of the Commerce Act 1986.

The Government considers that existing competition law is not robust enough to guarantee the development of effective competition in the provision of the new 3G services. This is because the new technologies are still developing, and relevant markets are therefore currently ill-defined. Further, the Government intends to strengthen the mergers and acquisitions regime under section 47 of the Commerce Act.

It is considered that the application of a spectrum cap would best serve the interests of ensuring that competition develops in the provision of 3G mobile services, until relevant markets become sufficiently well-defined to enable reliance on the Act, and the mergers and acquisitions regime is strengthened.

3. How much spectrum is available for 3G purposes?

A further 15 MHz of spectrum will now be made available in the auction. This means that 60 MHz of spectrum suitable for 3G services will now be available in the auction, as opposed to 45 MHz. This spectrum was previously withheld from the auction to enable the Government to meet New Zealand's international obligations in relation to Mobile Satellite Services. This issue has now been resolved, and the spectrum can be auctioned without compromising New Zealand's ability to meet its obligations.

4. Which part of the 2 GHz auction will be affected by the cap?

The cap only applies to the 3G band and the "IMT 2000 natural pair" of that block (from 2110 – 2170 MHz).

The current design of technology dictates that a cellular mobile operator needs to operate (and therefore have rights over) suitable spectrum in "pairs". One block is the "mobile transmit" block, the other is the "mobile receive" block. The location of the pairs on the spectrum is dictated on a regional or international basis by relevant standard-setting bodies, depending on the technology involved.

To set up a network, a prospective IMT 2000 operator therefore needs to acquire management rights in the 3G band and the corresponding pairs in the IMT 2000 natural pair band. A prospective USPCS operator would need to acquire management rights in the 3G band from 1930 – 1960 MHz plus the corresponding management right pair in the USPCS natural pair band (1850 – 1880 MHz).

5. What are the specific details of the cap?

Bidders will not be allowed to acquire more than 15 MHz of management rights in the 3G band, plus the natural pairs of any rights acquired in that band.

Any management rights purchased within the 3G band and their natural pairs must be contiguous (i.e. adjacent).

Bidders would also be allowed to purchase a maximum of 5 MHz (unpaired) out of three 5 MHz management rights that would be created in the band from 2010 – 2025 MHz.

Bidders will not be required to bid for paired management rights in the 3G band and the IMT 2000 natural pair band (because pairing would not leave bidders free to choose between USPCS and IMT 2000 pairs). However, if bidders wish to acquire a pair in the IMT 2000 natural pair band, they may only acquire the corresponding natural management right pair of a management right in the 3G band.

The cap will apply to the aggregate total spectrum in the relevant range held by individual parties and other parties associated with those parties. Accordingly, bidders would be required to disclose to the Secretary of Commerce associations with other bidders prior to the conclusion of the auction.

6. Why was 15 MHz chosen as the limit?

Expert advice indicates that 15 MHz (paired) is the minimum amount that an operator would need to implement a full national 3G cellular mobile network.

The specification of the cap at 15 MHz means that the auction of relevant management rights will potentially allow four players to compete in the provision of 3G services.

7. How long will the cap apply for?

Once markets are more clearly defined, general competition law is likely to be the most effective means of ensuring effective competition in the provision of 3G services in the medium to long term.

The cap will apply initially for three years from the date management rights are transferred to successful bidders to allow markets to become more clearly defined. During this period there will be a review of whether competition law expected to be in place at the end of three years is sufficient to prevent undue aggregation of spectrum.

8. How will the cap be enforced?

During the period in which the cap applies, bidders may not sell their 3G spectrum rights to another party without first satisfying the Secretary of Commerce that the transferee will not be exceeding the cap as a result of the transfer.

This will be achieved by requiring successful bidders to enter into a contract with the Crown. That would have the effect of preventing spectrum being transferred to another party, or being used by another party, without the prior approval of the Secretary of Commerce (who will lodge caveats on each management right). The purchaser would be required to satisfy the Secretary that the proposed transferee or interest holder will not hold management rights in excess of the cap.

9. How will competing technology issues be managed?

Within the 3G band there is a large degree of overlap in the spectrum that is suitable for IMT 2000 technologies on the one hand, and USPCS technologies on the other. Within this overlapping spectrum these technologies are incompatible.

To manage incompatibility between technologies using adjacent management rights, any USPCS operators will be responsible for managing interference with neighbouring IMT 2000 services. This would be achieved by attaching conditions to the management rights in the 3G band that limit a USPCS operator's ability to emit signals that are likely to cause interference with the reception of IMT 2000 services.

The proposed interference management conditions still allow USPCS operators enough spectrum to provide a full service.

10. Are there any changes to the lot structure?

The 3G band is currently divided into three 10 MHz blocks and three 5 MHz blocks. The decision to include the additional 15 MHz in the auction will see another block of 10 MHz and 5 MHz added.

A number of fixed link operators currently hold licences in the 2 GHz band to operate their services. The Ministry has operated a policy of creating similar licences to the ones they already hold for a 15 year period beyond any 5 year statutory incumbency rights provided for in the Radiocommunications Act (i.e. 20 years in total). A number of these licences ("beyond licences") are currently included in the auction, spanning the 2 GHz band.

Some of the beyond licences in the auction overlap with proposed management rights in the 3G band, creating a risk that operation of fixed links in certain areas (particularly urban areas such as Auckland) could prevent mobile services in the same area using the same or adjacent spectrum from being licensed. Further, as use of the beyond licences creates the potential for limiting the licensing of mobile services in underlying adjacent management rights, they may be taken up in the auction by potential mobile operators to strategically interfere with a competitor's services.

Therefore, beyond licences will be removed from the auction where they fall within the 3G band, the band from 2010 – 2025 MHz, and the IMT 2000 natural pair band, except where the Secretary of Commerce considers that the use of such licences is unlikely to constrain the use of underlying or adjacent management rights for the provision of mobile services.

Where a beyond licence is removed from the 2 GHz auction the Ministry of Economic Development will seek to negotiate suitable alternative licensing arrangements for the services concerned.

11. How is it proposed to respond to what the Waitangi Tribunal had to say about the state of the Maori language?

The Crown has an obligation to promote Maori language and culture.

The Maori language is clearly in a vulnerable state, despite a number of initiatives being taken across different domains of activity, e.g. education and broadcasting.

In the short term, an additional one-off $15m will be allocated for the promotion of opportunities for Maori development through language and culture.

For the medium to long term, the Government will be taking a fresh and comprehensive look at the effectiveness of current policies for promoting Maori language and culture.

As part of strengthening the Government's Maori language strategy, responsibility for Maori broadcasting and Te Mangai Paho will be transferred from the Ministry of Economic Development to Te Puni Kokiri.

12. How is it proposed to recognise that 2GHz spectrum can make an important contribution to Maori development?

Opportunities in 2 GHz spectrum, and particularly spectrum in the 3G band, can be expected to play an important part in Maori development.

Accordingly, the Government has decided that preferential bidding access to one 15 MHz block of spectrum in the 3G band will be given only to those parties able to demonstrate some commitment to involve Maori in the development of this spectrum.

Criteria for who will be eligible to bid for this spectrum at auction will be incorporated in the auction's rules.

To facilitate Maori participation in the utilisation of the spectrum and related technological developments, a one-off fund of $5m will be created.

As part of its ongoing commitment to close the gaps between Maori and non-Maori, the Government will keep open the possibility of further assisting Maori to participate in the telecommunications and information technology sectors, and to gain access to related services.

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